Cyprus Finance Minister: Bailout terms won't be too harsh

NICOSIA (Reuters) - Cyprus said on Wednesday it would be premature to speculate on conditions attached to a bailout request from its EU partners, but did not think they would be particularly austere.

The tiny Mediterranean island became the fifth euro zone nation on Monday to seek emergency funding from Europe, with a bailout bill that could potentially amount to more than half the size of its economy.

European Commission and European Central Bank officials are due in Cyprus next week to start work on determining how much Nicosia will require.

"It would be premature to specify what the (bailout) conditions will be," Finance Minister Vassos Shiarly told state radio. "I believe what we will discuss and conclude on won't be so painful as some may believe."

Cyprus needs to plug a 1.8 billion euro regulatory capital shortfall in its second-largest lender, Cyprus Popular Bank, by June 30. The Cypriot banking system has been hit heavily by a writedown on Greek sovereign bonds, part of a bailout package for that country to make its debt mountain more sustainable.

The 1.8 billion euro figure is the equivalent of 10 percent of Cyprus's 17.3 billion euro GDP, and two euro zone sources on Tuesday put a potential bailout amount at up to 10 billion euros.

The government says no amounts have been discussed.

Cyprus kept markets guessing for weeks as to whether it would seek aid from its EU partners or resort to bilateral lending. One of its key fears is pressure that its low-tax status could be challenged, and unpopular austerity measures imposed with a general election in eight months.

But it has also been spooked by the experience of Greece, and there has been a clear divide in the leftist government between the merits of going to EU partners, a view said to be espoused by Shiarly, or seeking bilateral assistance, a view taken by Cypriot president Demetris Christofias.

Cypriot newspapers on Wednesday said that Christofias still held out hope of getting a loan from Russia. Politis reported that Christofias, a Soviet-trained communist leader, had sent a letter to Russian President Vladimir Putin.

The Phileleftheros daily said Christofias had also dangled the prospect of pulling the EU bailout bid if a bilateral loan came through during a meeting with political leaders on Tuesday.

Asked whether Cyprus could reconsider its application, Shiarly said: "I don't think the system works that way. We are serious, and we have to deal with serious people."